Chapter 4 Writing a Business Plan
1) Lincoln & Lexi, the company profiled in the opening feature for Chapter 4, was founded to:
A) sell consulting services to e-commerce sites
B) provide nanny and tutoring services
C) sell jewelry online
D) sell iPhone apps for casual gamers
E) sell children's clothing through home parties and baby showers
Answer: E
Rationale:
The correct answer is E, as Lincoln & Lexi was founded to sell children's clothing through home
parties and baby showers. This information is provided in the question stem, which states that
Lincoln & Lexi is the company profiled in the opening feature for Chapter 4.
2) Martin Nelson is thinking about launching a small business consulting company. To get
advice on how to proceed, he stopped by his local Small Business Administration (SBA) office.
The SBA advisor told Martin that one of the first things he needs to do is to sit down and write a
25 to 35-page narrative that describes what his new business plans to accomplish and how it
plans to accomplish it. The SBA advisor is telling Martin to write a(n):
A) tactical plan
B) marketing plan
C) operations plan
D) business plan
E) feasibility analysis
Answer: D
Rationale:
The correct answer is D, as Martin Nelson is advised to write a business plan by his SBA
advisor. A business plan typically describes what a new business plans to accomplish and how it
plans to accomplish it, making it the most appropriate choice in this context.
3) Which of the following is the main purpose for writing a business plan?
A) The plan helps the company develop a "road map" to follow.
B) The plan introduces potential investors and other stakeholders to the business opportunity.
C) Both A and B are equally important.
D) Neither A nor B captures the true purpose of a business plan.
E) Reason A is the most important for experienced entrepreneurs and reason B is the most
important for inexperienced entrepreneurs.
Answer: C
Rationale:
The correct answer is C, as both options A and B are valid purposes for writing a business plan.
While the plan helps the company develop a "road map" to follow (A), it also introduces
potential investors and other stakeholders to the business opportunity (B).
4) According to the textbook, a business plan is best described as a(n):
A) narrative description of a new business
B) contract
C) budget
D) agreement
E) marketing initiative
Answer: A
Rationale:
The correct answer is A, as a business plan is best described as a narrative description of a new
business. It typically outlines the goals, strategies, market analysis, financial projections, and
other key aspects of a new venture.
5) According to the textbook, only ________ of the 600 entrepreneurs that participated in a
recent Wells Fargo/Gallup Small Business Study indicated that they had started their venture
with a business plan.
A) 12 percent
B) 31 percent
C) 20 percent
D) 6 percent
E) 48 percent
Answer: B
Rationale:
The correct answer is B, as according to the textbook, 31 percent of the 600 entrepreneurs in the
study indicated that they had started their venture with a business plan. This suggests that a
significant portion of entrepreneurs do not begin their ventures with a formal business plan.
6) A business plan is important for two reasons: it forces the founding team to systematically
think through every aspect of their new venture and:
A) it is a budget
B) it is a public relations document that can be used to promote the firm
C) it is a contract that is signed by the founders of the firm
D) it is a financial analysis
E) it communicates the merits of a new venture to outsiders, such as investors and bankers
Answer: E
Rationale:
The correct answer is E, as a business plan communicates the merits of a new venture to
outsiders, such as investors and bankers. The first part of the statement also highlights another
important purpose of a business plan, which is to force the founding team to systematically think
through every aspect of their new venture.
7) Which of the following statements is incorrect about business plans?
A) Writing a business plan forces a firm's founders to systematically think through each aspect of
their new venture.
B) For most new ventures, the business plan is a dual-purpose document used both inside and
outside the firm.
C) A business plan is typically 25 to 35 pages long.
D) A large percentage of entrepreneurs do not write business plans for their new ventures.
E) The business plan should be written while the feasibility analysis is being completed.
Answer: E
Rationale:
The correct answer is E, as the statement that the business plan should be written while the
feasibility analysis is being completed is incorrect. The feasibility analysis is typically conducted
before writing the business plan to assess the viability of the business idea.
8) The document that does the best job of introducing potential investors and other stakeholders
to the business opportunity the firm is pursuing and how it plans to pursue it is the:
A) business plan
B) feasibility analysis
C) opportunity analysis
D) industry analysis
E) marketing plan
Answer: A
Rationale:
The correct answer is A, as the business plan is the document that does the best job of
introducing potential investors and other stakeholders to the business opportunity the firm is
pursuing and how it plans to pursue it. The business plan typically includes detailed information
on the business concept, market analysis, competitive analysis, marketing plan, operations plan,
management team, and financial projections.
9) There are two primary audiences for a business plan:
A) a firm's employees and officials with the SEC
B) a firm's customers and its competitors
C) investors and other external stakeholders and public relations firms
D) officials with the SEC and public relations firms
E) a firm's employees and investors and other external stakeholders
Answer: E
Rationale:
The correct answer is E, as the two primary audiences for a business plan are a firm's employees
and investors and other external stakeholders. The business plan serves as a guide for employees
and a tool for attracting investors and other external stakeholders.
10) There are two primary audiences for a business plan: investors and other external
stakeholders and:
A) officials with the SEC
B) a firm's employees
C) a firm's competitors
D) a firm's customers
E) public relations firms
Answer: B
Rationale:
The correct answer is B, as the second primary audience for a business plan is a firm's
employees. The business plan helps to align the efforts of employees with the goals and
objectives of the new venture, serving as a roadmap for the company's future direction.
11) Which of the following is not an individual, group, or institution that normally reads a
company's business plan?
A) board of directors
B) potential alliance partners and major customers
C) state and local government officials
D) key recruits for jobs with the new firm
E) rank-and-file employees
Answer: C
Rationale:
The correct answer is C, as state and local government officials are not typically among the
individuals, groups, or institutions that normally read a company's business plan. The other
options are more common readers of a business plan.
12) Which of the following is not a recommended guideline for writing a business plan?
A) To make the best impression, a business plan should follow an unconventional structure and
stand out in some dramatic way.
B) A business plan needs to project a sense of anticipation and excitement about the possibilities
that surround a new venture.
C) For most plans, 25 to 35 pages is sufficient.
D) A business plan should look sharp, but not a lot of money should be spent on the physical
appearance of the plan.
E) Shy away from using a lot of boldfaced type, italics, clip art, and different font sizes and
colors when preparing a business plan.
Answer: A
Rationale:
The correct answer is A, as following an unconventional structure and standing out in a dramatic
way is not a recommended guideline for writing a business plan. Instead, a business plan should
be clear, concise, and professional, focusing on the content and substance of the plan rather than
its presentation.
13) Which of the following is not one of the "red flags" listed in the textbook that raises
questions about one or more aspects of a company's business plan?
A) founders with none of their own money at risk
B) defining the market size too narrowly
C) a poorly cited plan
D) sloppiness in any area
E) overly aggressive financials
Answer: B
Rationale:
The correct answer is B, as defining the market size too narrowly is actually listed as one of the
"red flags" that raises questions about one or more aspects of a company's business plan. This
indicates that the other options are valid "red flags" that should be avoided in a business plan.
14) Which of the following is one of the "red flags" listed in the textbook that raises questions
about one or more aspects of a company's business plan?
A) takes several days or weeks to complete
B) founders that have their own money at risk
C) defining the market size too broadly
D) less than 50 pages long
E) directed towards both an external and an internal audience
Answer: C
Rationale:
The correct answer is C, as defining the market size too broadly is listed as one of the "red flags"
that raises questions about one or more aspects of a company's business plan. This indicates that
the other options are valid "red flags" that should be avoided in a business plan.
15) Which of the following statements is incorrect regarding business plans?
A) A firm's business plan is typically the first aspect of a proposed venture that will be seen by
an investor.
B) To make the best impression, a business plan should follow an unconventional structure, so it
will stand out.
C) A business plan has both an external and an internal audience.
D) A company's business plan is typically written by its founders.
E) Potential investors are typically keenly interested in a company's business plan.
Answer: B
Rationale:
The correct answer is B, as following an unconventional structure to make a business plan stand
out is not a recommended approach. A business plan should be clear, well-organized, and
professional, focusing on presenting the venture's information effectively to its intended
audience.
16) For most business plans ________ pages are sufficient.
A) 40 to 50
B) 30 to 40
C) 15 to 20
D) 25 to 35
E) 5 to 10
Answer: D
Rationale:
The correct answer is D, as most business plans are typically between 25 to 35 pages long. This
length is considered sufficient to cover all the necessary aspects of a business plan without being
overly lengthy.
17) There are three types of business plans:
A) functional business plan, full business plan, feasibility plan
B) summary business plan, contingency plan, full business plan
C) functional business plan, contingency plan, full business plan
D) opportunity plan, feasibility plan, full business plan
E) summary business plan, full business plan, operational business plan
Answer: E
Rationale:
The correct answer is E, as the three types of business plans are typically classified as summary
business plans, full business plans, and operational business plans. Each type serves a different
purpose and audience, with the summary business plan being concise, the full business plan
being comprehensive, and the operational business plan focusing on internal operations.
18) Zachery Mays is in the very early stages of putting together a business startup, and is
thinking about writing a business plan to request funds to conduct a feasibility analysis and write
a more complete business plan. What type of business plan should Zachery write at this point?
A) full business plan
B) tactical business plan
C) summary business plan
D) operational business plan
E) strategic business plan
Answer: C
Rationale:
The correct answer is C, as Zachery Mays should write a summary business plan at this point. A
summary business plan is typically shorter and provides an overview of the business concept,
market opportunity, competitive advantage, and financial projections, making it suitable for
requesting funds for further planning.
19) A(n) ________, which is typically 25 to 35 pages long, works best for new ventures who are
at the point where they need funding or financing.
A) tactical business plan
B) strategic business plan
C) summary business plan
D) full business plan
E) operational business plan
Answer: D
Rationale:
The correct answer is D, as a full business plan, which is typically 25 to 35 pages long, works
best for new ventures that are at the point where they need funding or financing. This type of
business plan provides a detailed description of the business concept, market analysis,
competitive analysis, marketing plan, operations plan, management team, and financial
projections.
20) A(n) ________, which is intended to be a blueprint for a company's operations, is 40-100
pages long and is meant primarily for an internal audience.
A) operational business plan
B) full business plan
C) deliberate business plan
D) summary business plan
E) tactical business plan
Answer: A
Rationale:
The correct answer is A, as an operational business plan is intended to be a blueprint for a
company's operations. It is typically 40-100 pages long and is meant primarily for an internal
audience, providing detailed guidance on how the company will operate and achieve its goals.
21) Edward Andrews has decided to write a business plan that is intended to be read primarily by
his staff, which will present a blueprint for his company's entire operation and will provide
guidance to operational managers. Edward should write a(n):
A) operational business plan
B) tactical business plan
C) strategic business plan
D) summary business plan
E) functional business plan
Answer: A
Rationale:
The correct answer is A, as an operational business plan is intended to present a blueprint for a
company's entire operation and provide guidance to operational managers. It focuses on the
operational aspects of the business and is meant primarily for an internal audience, such as the
company's staff.
22) Match the business plan with its appropriate length:
A) operational business plan, 10-15 pages
B) full business plan, 25-35 pages
C) summary business plan, 25-35 pages
D) full business plan, 40 to 100 pages
E) operational business plan, 25-35 pages
Answer: B
Rationale:
The correct match is B, as a full business plan is typically 25-35 pages long. This length allows
for a comprehensive presentation of the business concept, market analysis, competitive analysis,
marketing plan, operations plan, management team, and financial projections.
23) Match the business plan with its appropriate emphasis:
A) summary business plan, works best for companies who are at the point where they need
funding or financing; serves as a "blueprint" for the company's operations
B) operational business plan, works best for companies in the early stages of development that
want to "test the waters" to see if investors are interested in their idea
C) full business plan, works best for companies in the early stages of development that want to
"test the waters" to see if investors are interested in the idea
D) summary business plan, is meant primarily for an internal audience; works best as a tool for
creating a blueprint for a company's operations and providing guidance to operational managers
E) summary business plan, works best for companies in the early stages of development that
want to "test the waters" to see if investors are interested in their idea
Answer: E
Rationale:
The correct match is E, as a summary business plan works best for companies in the early stages
of development that want to "test the waters" to see if investors are interested in their idea. It
provides a concise overview of the business concept, market opportunity, competitive advantage,
and financial projections.
24) The Savvy Entrepreneurial Firm feature for Chapter 4 focuses on three companies: Box.net,
Pixability, and Groupon. The overarching point of the feature is:
A) most business plan require major changes after the business is launched and the founder's
start getting customer feedback
B) the degree to which business plans pan out as their founders envisioned varies
C) most business plans require only minor changes after the business is launched and the
founders start getting customer feedback
D) the most effective business plans take four to eight weeks to complete
E) most business plans are quickly discarded after the business is launched
Answer: B
Rationale:
The correct answer is B, as the overarching point of the feature is that the degree to which
business plans pan out as their founders envisioned varies. This highlights the importance of
flexibility and adaptability in responding to feedback and changing circumstances in
entrepreneurship.
25) The ________ is a short overview of the entire business plan.
A) summary statement
B) executive summary
C) managerial review
D) founder's introduction
E) abstract
Answer: B
Rationale:
The correct answer is B, as the executive summary is a short overview of the entire business
plan. It provides a concise summary of the key points of the business plan, including the business
concept, market opportunity, competitive advantage, and financial projections.
26) Which of the following statements is incorrect regarding the executive summary of a
business plan?
A) It is a short overview of the entire business plan.
B) In many instances an investor will first ask for a copy of a firm's executive summary and will
request a copy of the full business plan only if the executive summary is sufficiently convincing.
C) It is arguably the most important section of the business plan.
D) It should not exceed two single-spaced pages.
E) The executive summary is the first thing that should be written in preparing a business plan.
Answer: E
Rationale:
The correct answer is E, as the executive summary is not the first thing that should be written in
preparing a business plan. Instead, it should be written after the rest of the business plan is
completed, as it provides a summary of the key points and highlights of the plan.
27) Paul Hempken just spoke to an investor, who is interested in his business idea. Paul offered
to send the investor a copy of his full business plan, but the investor asked for a short overview
of the business plan instead. What portion of his business plan should Paul send the investor?
A) marketing plan
B) executive summary
C) elevator pitch
D) company description
E) operations plan
Answer: B
Rationale:
The correct answer is B, as Paul should send the investor the executive summary, which is a
short overview of the entire business plan. The executive summary provides a concise summary
of the key points of the business plan and is often the first thing investors ask for.
28) According to the textbook, in many instances an investor will first ask for a copy of a firm's
________ and will request a copy of the full business plan only if that portion of the plan is
sufficiently convincing.
A) appendix
B) industry analysis
C) operations plan
D) financial plan
E) executive summary
Answer: E
Rationale:
The correct answer is E, as an investor will often first ask for a copy of a firm's executive
summary and will request a copy of the full business plan only if the executive summary is
sufficiently convincing. This highlights the importance of a well-crafted executive summary in
capturing investor interest.
29) Which of the following statements is incorrect regarding the industry analysis portion of a
firm's business plan?
A) It is important to focus simultaneously on a business's industry and its target market.
B) Industry structure refers to how concentrated or fragmented an industry is.
C) Most industries have 6 to 10 key success factors that should be reported in the industry
analysis.
D) Industry trends should be discussed, which include both environmental and business trends.
E) The industry analysis should conclude with a brief statement of your beliefs regarding the
long-term prospects for the industry.
Answer: A
Rationale:
The correct answer is A, as it is not incorrect to focus simultaneously on a business's industry
and its target market in the industry analysis portion of a firm's business plan. This approach
allows for a comprehensive understanding of the competitive landscape and market dynamics.
30) A company's mission statement should be placed in the ________ section of its business
plan.
A) marketing plan
B) management team and company structure
C) company description
D) market analysis
E) industry analysis
Answer: C
Rationale:
The correct answer is C, as a company's mission statement should be placed in the company
description section of its business plan. The company description provides an overview of the
business, including its mission, history, legal structure, and key milestones.
31) Industry structure refers to how:
A) concentrated or fragmented an industry is
B) traditional or progressive an industry is
C) innovative or conservative an industry is
D) hierarchical or flat an industry is
E) large or small an industry is
Answer: A
Rationale:
The correct answer is A, as industry structure refers to how concentrated or fragmented an
industry is. This aspect of industry analysis is important for understanding the competitive
dynamics and market conditions within an industry.
32) A(n) ________ describes why a company exists and what it aspires to become.
A) tactical statement
B) values statement
C) mission statement
D) operations statement
E) strategic statement
Answer: C
Rationale:
The correct answer is C, as a mission statement describes why a company exists and what it
aspires to become. It provides a sense of purpose and direction for the organization, guiding its
actions and decisions.
33) A(n) ________, in a business plan context, is a noteworthy event in the past or future
development of a business.
A) aspiration
B) intention
C) signpost
D) milestone
E) target
Answer: D
Rationale:
The correct answer is D, as a milestone, in a business plan context, is a noteworthy event in the
past or future development of a business. Milestones are used to track progress and
achievements, serving as indicators of success and progress toward goals.
34) The ________ section of a business plan breaks the industry into segments and zeroes in on
the specific segment (or target market) to which the firm will try to appeal.
A) competitive analysis
B) current status
C) market analysis
D) marketing plan
E) operations plan
Answer: C
Rationale:
The correct answer is C, as the market analysis section of a business plan breaks the industry into
segments and zeroes in on the specific segment (or target market) to which the firm will try to
appeal. It provides a detailed analysis of the market opportunity, including the target market's
needs, preferences, and buying behavior.
35) A competitor analysis should be included in the ________ section of a business plan.
A) market analysis
B) industry analysis
C) company description
D) management team and company structure
E) operations plan
Answer: A
Rationale:
The correct answer is A, as a competitor analysis should be included in the market analysis
section of a business plan. The competitor analysis identifies and analyzes the firm's key
competitors, their strengths and weaknesses, and their strategies, providing insights into the
competitive landscape.
36) The Partnering for Success feature in Chapter 4 focuses on the types of partnerships that are
common in business plans. According to the feature, businesses often make partnering an
essential part of their business plans because they:
A) want to obtain a key customer
B) want to increase their visibility
C) want to reduce risk
D) what to appear legitimate
E) have limited resources
Answer: E
Rationale:
The correct answer is E, as businesses often make partnering an essential part of their business
plans because they have limited resources. Partnering allows businesses to leverage the
resources, capabilities, and networks of partners to achieve mutual benefits and enhance their
competitive advantage.
37) The ________ section of the business plan addresses the basic logic of how profits are
earned in the business.
A) Economics of the Business
B) Operations Plan
C) Executive Summary
D) Design and Development plan
E) Market Analysis
Answer: A
Rationale:
The correct answer is A, as the Economics of the Business section of the business plan addresses
the basic logic of how profits are earned in the business. It includes the revenue model, cost
structure, pricing strategy, and financial projections, providing a clear understanding of the
business's financial viability and profitability.
38) Operating leverage is highest in companies that have:
A) a service rather than a manufacturing emphasis
B) virtually no fixed costs
C) equal variable costs and fixed costs
D) a high proportion of variable costs relative to their fixed costs
E) a high proportion of fixed costs relative to their variable costs
Answer: E
Rationale:
The correct answer is E, as operating leverage is highest in companies that have a high
proportion of fixed costs relative to their variable costs. This means that a small change in sales
can lead to a larger change in profits, as fixed costs remain constant regardless of sales volume.
39) Which of the following statements is incorrect regarding the marketing plan section of a
business plan?
A) The marketing plan focuses on how the business will market and sell its product or service.
B) The two most important items to include in a marketing plan are (1) overall marketing
strategy and (2) the nuts and bolts of marketing a firm's product in terms of product, price,
promotion, and place.
C) The best way to describe a company's marketing plan is to begin by talking about its
competitors.
D) A firm's marketing strategy refers to its overall approach for marketing its products and
services.
E) A firm's overall approach to marketing typically boils down to how it positions itself in its
market and how it differentiates itself from its competitors.
Answer: C
Rationale:
The correct answer is C, as it is incorrect to state that the best way to describe a company's
marketing plan is to begin by talking about its competitors. While competitor analysis is an
important part of the marketing plan, it is not the best way to describe the entire marketing plan,
which should also include the overall marketing strategy, target market analysis, and marketing
tactics.
40) A computer-generated image of an invention that displays the invention as a 3D model that
can be viewed from all sides and rotated 360 degrees is called a(n):
A) virtual prototype
B) concept visualization
C) abstract prototype
D) virtual design
E) usability test
Answer: A
Rationale:
The correct answer is A, as a computer-generated image of an invention that displays the
invention as a 3D model that can be viewed from all sides and rotated 360 degrees is called a
virtual prototype. Virtual prototypes are used to visualize and test product designs before
physical prototypes are built, helping to reduce costs and accelerate product development.
41) A prototype is:
A) a form of opportunity recognition
B) a tool for evaluating the industry a new firm plans to enter
C) a financial model
D) the first physical depiction of a new product
E) a tool for evaluating the organizational prowess of a new firm
Answer: D
Rationale:
A prototype is a preliminary version of a product, typically used for testing and evaluation
purposes. It is the first physical representation of a new product idea, allowing for refinement
and improvement before full-scale production.
42) What section of the business plan deals with the day-to-day operations of a company?
A) financial plan
B) marketing plan
C) operations plan
D) industry analysis
E) executive summary
Answer: C
Rationale:
The operations plan section of a business plan outlines how the company will function on a dayto-day basis. It includes details such as production processes, facilities, equipment, and personnel
requirements.
43) The facilities and equipment that a business needs should be described in the ________
section of its business plan.
A) marketing plan
B) management team and company structure
C) company description
D) market analysis
E) operations plan
Answer: E
Rationale:
The operations plan section of a business plan typically includes information about the facilities
and equipment needed for the business to operate effectively.
44) According to the textbook, many investors and others who read business plans look first at
the executive summary and then go directly to the ________ section of the business plan to make
their preliminary assessment.
A) management team and company structure
B) product (or service) design and development plan
C) industry analysis
D) marketing plan
E) operations plan
Answer: A
Rationale:
The management team and company structure section of a business plan provide readers with an
understanding of the leadership and organizational structure of the company, which is crucial for
assessing its potential for success.
45) A(n) ________ is a graphic representation of how authority and responsibility are distributed
within a company.
A) organizational chart
B) personnel chart
C) human resources chart
D) administrative chart
E) directional chart
Answer: A
Rationale:
An organizational chart visually represents the hierarchy and reporting structure within a
company, showing how authority and responsibility are distributed among different roles and
positions.
46) The document that lays out specifically how much money a firm needs, where the money
will come from, and what the money will be used for is referred to as a(n):
A) sources and uses of funds statement
B) assumptions sheet
C) pro forma financial statement
D) credit and debit statement
E) capital and operational budgeting statement
Answer: A
Rationale:
The sources and uses of funds statement details the amount of money a firm needs, the sources
from which it will acquire the funds, and how those funds will be used, providing a clear
financial plan for the business.
47) Kate Payne was reading the business plan for New Venture Fitness Drinks, and noticed that
prior to its financial statements, New Venture Fitness Drinks placed an explanation of the
sources of the numbers for the statements and the assumptions used to generate them. This
explanation is called a(n):
A) estimate sheet
B) hypothesis sheet
C) assumptions sheet
D) forecast sheet
E) forecast hypothesis
Answer: C
Rationale:
An assumptions sheet outlines the sources of the numbers used in financial statements and the
assumptions made in generating those numbers. It provides transparency and context for the
financial projections in a business plan.
48) According to the textbook, the ________ are the heart of the financial section of a business
plan.
A) financial ratios
B) pro forma financial statements
C) budgets
D) sources and uses of funds statements
E) break-even analyses
Answer: B
Rationale:
Pro forma financial statements, including income statements, balance sheets, and cash flow
statements, are at the core of the financial section of a business plan. They project the financial
performance of the company based on certain assumptions and are crucial for investors and
lenders in assessing the business's viability.
49) Most business plan writers interpret or make sense of a firm's historical and/or pro forma
financial statements through:
A) ratio analysis
B) assumptions analysis
C) scenario analysis
D) proportion analysis
E) relative analysis
Answer: A
Rationale:
Ratio analysis is a common method used by business plan writers to interpret a firm's financial
statements. It involves calculating and analyzing various financial ratios to assess the company's
financial performance, liquidity, profitability, and efficiency.
50) According to the textbook, the first rule in making an oral presentation is to:
A) follow instructions
B) be creative
C) emphasize all the positive aspects of a business venture
D) appear confident
E) do something out of the ordinary
Answer: A
Rationale:
Following instructions is crucial in making an effective oral presentation. It ensures that the
presenter addresses the key points and meets the expectations of the audience or evaluators.
51) A commercialization plan is a written narrative that describes what a new business plans to
accomplish and how it plans to accomplish it.
Answer: False
Rationale:
A commercialization plan specifically focuses on how a new product or service will be marketed
and sold. It is more focused on the commercial aspects of the business, such as pricing,
distribution, and promotion strategies, rather than a broader description of what and how a
business plans to accomplish its goals.
52) According to a Wells Fargo/Gallup Small Business Study cited in the book, a large
percentage of entrepreneurs write business plans for their ventures.
Answer: False
Rationale:
According to the study cited in the book, only about one-third of entrepreneurs actually write a
formal business plan for their ventures, indicating that a large percentage do not.
53) For most new ventures, the business plan is a dual-purpose document used both inside and
outside the firm.
Answer: True
Rationale:
The business plan serves as a roadmap for the internal operations of the firm, guiding decisionmaking and resource allocation. It also serves as a communication tool for external stakeholders,
such as investors, lenders, and partners, to understand the company's vision, strategy, and
potential.
54) A business plan can usually be completed in one to three days.
Answer: False
Rationale:
Developing a comprehensive business plan typically requires thorough research, analysis, and
strategic thinking. It often takes several weeks or even months to complete a business plan,
especially for complex ventures.
55) There are two primary audiences for a firm's business plan: a firm's employees and investors
and other external stakeholders.
Answer: True
Rationale:
A business plan is intended to communicate the company's goals, strategies, and operations to
both internal stakeholders (employees) and external stakeholders (investors, lenders, partners,
etc.). It serves as a guide for employees and as a tool for attracting external support and
investment.
56) To make the best impression, a business plan should follow a conventional structure.
Answer: True
Rationale:
Following a conventional structure for a business plan, which typically includes sections such as
executive summary, company description, market analysis, marketing plan, operations plan,
management team, and financial plan, helps to organize the information in a logical and coherent
manner, making it easier for readers to understand and evaluate.
57) For most business plans, 25 to 35 pages are sufficient.
Answer: True
Rationale:
A business plan should be concise and focused, presenting the key information and strategies in a
clear and compelling manner. For most ventures, a business plan of 25 to 35 pages is sufficient
to cover all the essential aspects of the business and its plans.
58) According to the textbook, the executive summary is arguably the most important section of
the business plan.
Answer: False
Rationale:
While the executive summary is important as it provides a concise overview of the business plan,
the most important section can vary depending on the audience and purpose of the plan. Other
sections, such as the financial plan or the market analysis, may be more critical in certain
contexts.
59) The executive summary is a lengthy overview of the entire business plan.
Answer: False
Rationale:
The executive summary is a brief summary of the key points and highlights of the business plan.
It should provide enough information to pique the interest of the reader and encourage them to
read the rest of the plan, but it should not be lengthy or overly detailed.
60) A company's industry analysis and target market analysis are usually included in the same
section of its business plan.
Answer: False
Rationale:
The industry analysis and target market analysis are typically separate sections in a business
plan. The industry analysis provides an overview of the industry in which the company operates,
including trends, competition, and market dynamics. The target market analysis focuses on
identifying and understanding the specific market segments that the company plans to target with
its products or services.
61) Fragmented industries are more receptive to new entrants than industries that are dominated
by a handful of large firms.
Answer: True
Rationale:
In fragmented industries, there are many small competitors with no dominant players, making it
easier for new entrants to enter the market and gain market share. In contrast, industries
dominated by a few large firms often have high barriers to entry, such as high capital
requirements or strong brand loyalty, making it more difficult for new entrants to compete.
62) A tagline is a phrase that a business uses to reinforce its position in the marketplace.
Answer: True
Rationale:
A tagline is a short, memorable phrase that conveys the essence of a business or its brand. It is
often used in advertising and marketing to reinforce the company's positioning and communicate
its unique value proposition to customers.
63) A competitor analysis, which is a detailed analysis of a firm's competitors, should be
included in the market analysis section of its business plan.
Answer: True
Rationale:
A competitor analysis is an important component of the market analysis section of a business
plan. It involves identifying and evaluating the strengths and weaknesses of competitors, as well
as assessing their strategies and market positions. This information helps the firm understand its
competitive landscape and develop strategies to differentiate itself and gain a competitive
advantage.
64) The major revenue drivers, which are the ways a business earns money, should be first
identified in "The Economics of the Business" section of the business plan.
Answer: True
Rationale:
"The Economics of the Business" section of a business plan typically includes a discussion of the
major revenue drivers, which are the key sources of revenue for the business. By identifying and
analyzing these revenue drivers, the firm can better understand its revenue streams and develop
strategies to maximize revenue growth.
65) A firm's operating leverage is an analysis of its debt versus its equity.
Answer: False
Rationale:
Operating leverage is a measure of how a firm's fixed costs impact its profitability. It is
calculated as the percentage change in operating income divided by the percentage change in
sales revenue. Operating leverage is not directly related to a firm's debt or equity structure.
66) The management team and company structure section of a business plan is one of the lesser
read sections.
Answer: False
Rationale:
The management team and company structure section of a business plan is often one of the most
important sections for investors and lenders, as it provides information about the leadership
team's qualifications and experience, as well as the organizational structure of the company.
Investors and lenders are interested in the management team's ability to execute the business plan
and manage the company effectively.
67) An organizational chart is a graphic representation of how authority and responsibility are
distributed within a company.
Answer: True
Rationale:
An organizational chart visually depicts the hierarchical structure of a company, showing the
relationships between different positions and departments, as well as the flow of authority and
responsibility within the organization.
68) A sources and uses of funds statement is a document that lays out specifically how much
money a firm needs, where the money will come from, and what the money will be used for.
Answer: True
Rationale:
A sources and uses of funds statement is a financial document that outlines the amount of money
a firm needs to finance its operations, the sources from which it will obtain the funds, and how it
plans to use the funds. It provides a detailed plan for managing the firm's financial resources.
69) The pro forma financial statements are the heart of the operations section of a business plan.
Answer: False
Rationale:
The pro forma financial statements, which include income statements, balance sheets, and cash
flow statements, are a key component of the financial section of a business plan, not the
operations section. They project the financial performance of the company based on certain
assumptions and are used to assess the financial feasibility of the business.
70) The first rule in making an oral presentation is to follow instructions.
Answer: True
Rationale:
Following instructions is important in any presentation setting to ensure that the presenter meets
the requirements and expectations of the audience or evaluators. It demonstrates professionalism
and respect for the audience's time and attention.
71) What is a business plan?
Answer: A business plan is a written narrative, typically 25 to 35 pages long, that describes what
a new business plans to accomplish and how it plans to accomplish it.
72) What are the two main reasons for writing a business plan?
Answer: First, writing a business plan forces a firm's founders to systematically think through
each aspect of their new venture. Second, writing a business plan creates a selling document for a
company. It provides a mechanism for a young company to present itself to potential investors,
suppliers, business partners, key job candidates, and others.
73) Experienced entrepreneurs often refer to business plans as "living, breathing documents."
What is meant by this characterization of business plans?
Answer: An important aspect of writing a business plan is to recognize that the plan will usually
change as it is being written. New insights invariably emerge when an entrepreneur or team of
entrepreneurs immerse themselves in writing the plan and start getting feedback from others.
This process continues throughout the life of a company, and it behooves entrepreneurs to
remain alert and open to new insights and ideas. As a result of this phenomenon, entrepreneurs
who have written business plans and have launched successful businesses stress that a business
plan is a living, breathing document, rather than something that is set in stone.
74) What is an "executive summary?" Why is the executive summary often called the most
important part of a business plan?
Answer: The executive summary is a short overview of the entire business plan; it provides a
business plan reader with everything that needs to be known about a new venture's distinctive
aspects. The executive summary is important because it is often the first (or only) part of a
business plan that a busy investor or other stakeholders will read. As a result, unless the
executive summary is compelling, the business plan may not get any additional attention.
75) Why is the "management team and company structure" section of the business plan often
given disproportionate weight among investors?
Answer: Investors read more business plans with interesting ideas and exciting markets than they
are able to finance. As a result, it's often not the idea or market that wins funding among
competing plans, but the perception that one management team is better prepared to execute their
idea than the others.
Test Bank for Entrepreneurship: Successfully Launching New Ventures
Bruce R. Barringer, R. Duane Ireland
9780132555524, 9780131393905, 9780134729534, 9780133797190
